« I actually think it’s the beginning of the end… When
you have 20 years of pro-cyclicality of thought manifesting itself in the way
that it has in Japan…I am not naive enough to think I can predict the end of a
70-year debt super cycle with any kind of precision, but looking at the changes
in the qualitative perception of the participants is something that I think is
key to the situation and we saw a big change on Friday. »

« When I started
sharing our views more globally it was the middle of 2010 and I said I believe
the stress would begin to show itself in the next three years. Pretty much three
years in, we’re close, and the stress is beginning to show. Maybe that was luck
at the time, but now when you ask the timing–look everyone wants the crystal
ball and it’s really difficult to predict this, but what you can do is follow
where I think the stresses are going to show in the marketplace, but more
importantly, you have to get into the heads of the participants because they all
have a collective sense of fatalism. When you do the quantitative analysis here,
you know they are insolvent. Everyone who owns the bonds knows they are
insolvent. It’s a question of how long they can hang on. What changes their
views are a multitude of variables, but it’s really important to follow any
change in those views. When you see things like Argentina, Greece, Cyprus,
Ireland, Italy–you see how fast things go from perfectly stable to completely
unstable. In this case I think it will happen more quickly because of the 20
year buildup. »

On Hayman Capital having strong performance overall when
it has a trade that, even if it’s right, takes a while:

“When we think
about the globe, I think about positioning. When you invest in a fiduciary like
myself or someone else, you want someone that has the courage of their
convictions. You want someone that is not particularly dogmatic. And if they
are, you want to think about risk management. It is really important to size
things properly. So far, knock on wood, I think you have to be as thoughtful as
you can possibly be on the construct of the position and not set yourself up for
many years of losses until something like this happens.”

« It’s really
important to think about the capital at risk in your strategy and the construct
of how you put these kinds of hedges into place. We have 90+% of our money is
long–long U.S. structured credit, U.S. mortgages, U.S. stocks–the majority of
our capital is long. »

On structured credit and the importance of being
very liquid in the long side:

“Believe it or not it’s really liquid
right now. With Bernanke pinning rates at zero and the entire world continues to
chase yield. Our indices are being led by utilities and things that don’t
particularly lead us into new highs, it’s because of their dividend yield. So
the whole world continues to chase yield. Structured credit and even mortgage
credit are one of the most liquid areas in the marketplace today. People can’t
get enough of them. Even in subprime credit, 97% of the 20,000 line items are
still rated below investment grade. They’re still junk. The ratings-based buyers
aren’t even there yet. The money is being misallocated by the printing
press. »

On gold:

“We have always had a position in gold. When
you think about the largest central banks in the world, they have all moved to
unlimited printing ideology. Monetary policy happens to be the only game in
town. I am perplexed as to why gold is as low as it is. I don’t have a great
answer for you other then you should maintain a position.”

On George
Soros’ recent statements that he’s losing interest in gold:

“George has
been a much better investor than I over the years. When you think about the
global monetary base, it is north of $70 trillion. All the gold in existence is
around $7-8 trillion. There might be $1.2-1.3 trillion of investable gold. At
some point in time, I would much rather would own gold than paper. I just don’t
know when that time is.”

On whether he’d rather own gold than U.S.
treasuries:

“I do. If something happens in Japan like we think it is
going to happen, I think U.S. Treasury nominal yields will go negative in a
flight to quality. maybe gold moves up and Treasuries actually get much stronger
for all the wrong reasons, not as an endorsement of U.S. fiscal policy because
it is the only place money has to go… If monetary policy is the only game in
town, we are all in for a world of trouble. That is the way we see
it.”

On residential mortgage-backed securities:

“That investment
is working… The various concentric circles surrounding housing not getting
worse, which is how we think about it. We are not expecting it to get materially
better, just not to get worse. The services sectors, the new mortgage insurance
companies, the things that are actually asymmetric investments you can make
around the housing market not worsening are where the majority of our long side
of our portfolio is.”

On the future of Fannie and Freddie:

“I
have no clue… We decided to just exit, thinking about them when you meet with
both sides of the aisle, they both want a bullet in their head. Typically when
that happens you get a bullet in your head. The second thing we were thinking
about, if you remember there was a proposal to start raising the g-fees. There
is a way for the U.S. Treasury to get paid back all of the money they’ve pumped
into Fannie and Freddie if they start raising g-fees. »

Kyle Bass, an
American hedge fund manager, is the Founder of Hayman Capital. He received
extensive coverage in the financial press for profiting $590 million by short
selling the sub-prime mortgage bond market, before that market crashed. In 2011,
Bass initiated a huge position in Greek sovereign debt through CDSs. Media
reports were that he could profit up to 650 times his investment should Greece
default on its debt obligations.